£1m tax break to stimulate business confidence

13 November 2020 - Elizabeth Nichols

The Treasury has just announced that the temporary Annual Investment Allowance – which raises the allowance from £200,000 to £1 million – will be extended until March 2022. The allowance was due to revert back to £200,000 on 1 January 2021.

This move means that businesses can continue to claim up to £1 million tax relief in the same year for capital investments such as plant and machinery.

The Annual Investment Allowance allows businesses to claim for the full value of an asset. The list of assets that can be claimed includes:

  • items that are kept for use in the business
  • parts of a building considered integral, known as ‘integral features’ (see below)
  • some fixtures, for example fitted kitchens or bathroom suites
  • alterations to a building to install other plant and machinery – this does not include repairs, which can be claimed as business expense if you are a sole trader or partner, or deducted from your profits as a business cost if you are a limited company 

Integral features are:

  • electrical systems, including lighting systems
  • lifts, escalators and moving walkways
  • space and water heating systems
  • air-conditioning and air cooling systems
  • hot and cold water systems (but not toilet and kitchen facilities)
  • external solar shading

This means that for the majority of businesses, full tax relief can be obtained on new machinery as well as heating and electrical systems added into buildings in the year of purchase.

Financial Secretary to the Treasury Jesse Norman said: “It is vital that we support business through the difficult months ahead. Extending the Annual Investment Allowance’s £1 million cap will give businesses the confidence they need to invest into next year, helping them to grow whilst benefitting the wider economy too.”

“We have seen considerable uncertainty in recent months as many businesses have decided to defer investment in plant and machinery. This move by the government is intended to boost confidence as companies look to weather the pandemic and plan for the future.” Jason Fayers, Managing Partner

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